UW’s Fast Start template, a bad bureaucratic idea gone bad, 1

GeekWire ran an article recently announcing that the University of Washington has “unveiled” a new licensing scheme for startups: “Univ. of Washington rolls out new licensing process to streamline negotiations with spinouts.” Let’s work through this article and see what GeekWire has to say.

The University of Washington is aiming to make it easier for spinouts to get out of the research lab and into the market.

There’s an implication here: present UW practices for spinouts are *not so easy* and thus need to be “easier” than they are now. But wait, those not-easy practices developed in the re-organization of UW’s patent licensing program into the clownshow called C4C, which was singularly focused on startups. Startups, so C4C’s formal written five-year plan argued, would allow the university to speculate on stock valuations and make so much money it would change the university’s whole financial structure. Didn’t happen. Furthermore, C4C whacked away UW’s former approach to startups, called LaunchPad, led by Janis Machala, one of Seattle’s gurus of startups. LaunchPad created twice as many startups at half the cost, compared to C4C. And those startups were legit university startups, not like now. Eventually, the director of C4C–she who won’t be named–resigned after the negotiation with a startup took so long that a  UW regent complained. Yeah, “easier.”

We can talk over this bureaucratic easier, but there are other approaches so easy that bureaucrats won’t consider them–because they don’t involve bureaucrats. In one dirt simple approach, the university does not assert an ownership position in inventions (and other stuff) made by faculty and students (or anyone else). Inventors and authors then are free to place their work with their spinouts without the burden of disclosing their inventions to university officials, assigning them to the university, and then finding someone to represent them to license these inventions back from the university, after the university has run up an astounding patenting bill, which the startup is expected to reimburse. If the university must have a piece of the financial action, it can ask for a share of what the inventors make–5% or something–when the inventors have an equity liquidity event, such as a Series A round of investment or getting acquired. In this approach, the university does not have to take ownership of inventions only to assign ownership back to the startup under the guise of an exclusive license agreement. And the university does not have to take an equity position in the company to extract its pound of flesh.

In a second dirt easy scheme, the university accepts ownership of an invention and pays for the patenting on the pre-condition that it releases the invention for all to use. Public license. Open access. No negotiation necessary then with any startup. The startup just grabs what it needs and rolls with it. Wildly opportunistic. The startup’s proprietary positions will be in its (a) talent and (b) vision of what’s next and (c) everything distinctive it does with what it has got by open access. Getting to an exclusive position then is motivated by doing something new, not on suppressing what’s just been done.

“Easier” then not only implies that UW’s previous start up focused practices were a problem, but also insists on “easier but still involving bureaucrats.” Maybe “easier” than past bureaucratic clownery, but still way over on the “send in the bureaucrats, there’s got to be bureaucrats” side of things.

This week the UW unveiled Husky FAST Start, a new licensing process meant to speed up startup license discussions.

The speed of “license discussions” depends on a number of factors. We are not talking about talking faster, here. We are talking about getting from an initial position to a final position in the time frame that works for the startup. A startup might not want to finalize a license until it sees that claims have been allowed on a pending patent application–why bother with a license (and agreeing to pay patenting costs) if there won’t be any patent after all? A startup also might go slow because it has to raise money to start, and without money, there’s no point in closing the licensing deal and having an obligation to pay the university.

More: speed in licensing negotiations also depends on the starting position. Consider the difference between a 27-page university-drafted “template” fraught with all sorts of useless wording, demands, and requirements, all written in favor of the university, and a custom license agreement drafted after discussions with a focus on what’s involved, and on what both parties require. That draft will reflect what has been discussed. Much faster to get to agreement and signing, compared to what an attorney representing a startup will have to work through to deal with the university’s template.

Why is a 27-page license template treating every startup situation the same a wonderful thing? That’s a bureaucrat’s dream–that startups are all the same, that inventions are all the same, that the only thing that matters is the money, and the rest of the agreement is an attempt to prevent a startup from not paying. In the UW’s template, the definition of “Net Sales” is by far the longest section, taking up more than half a page.

The use of a template in this way argues that the UW doesn’t want to involve its own attorneys in the negotiating and drafting a deal responsive to the circumstances of each startup. The bureaucratic approach is to get a template pre-approved by the state’s attorneys and then focus the negotiations on allowable changes, avoiding having to go back to get legal review and approval for something not already contemplated. If one wanted to get a really good deal done quickly, one would assign an expert contracts/IP/startup attorney to the case and draft what’s needed when it is is needed. But that would be expensive for the university. Again “easier” is relative, and has the sense of “easier” for bureaucrats. Never underestimate how much of a university’s policy and procedures exist to serve bureaucrats, cover for refusal to delegate, and a fear of independent judgment. These are the basic premises: it would better if something didn’t happen at all. But if it must happen, then it should happen in only one way so no one up the administrative chain has to bother with the details. “Easier.”

The launch coincides with the 40th anniversary of the landmark Bayh-Dole Act, which gave federally-funded U.S. universities more control over technology licensing.

Well, Bayh-Dole gave universities a way to prevent inventions made in public research from being released by the federal government open access unless a university, having acquired ownership of an invention, made a persuasive argument that holding exclusive rights would better serve the public interest than would open access. But in the decade before Bayh-Dole, many universities were in the NIH Institutional Patent Agreement program (and in the NSF’s IPA program for five years). Under the IPA programs, universities were required to take ownership of inventions made in research with federal agency funding and which the university decided to patent.

Arguably, the IPA programs gave universities way more control than does Bayh-Dole. Of course, Bayh-Dole has various public protections–but none of them are enforced, so in that sense, Bayh-Dole does give more control. Put another way, federal agency practice under Bayh-Dole is to turn a blind eye to university licensing. The only bits of enforcement federal agencies worry about are the meaningless paperwork requirements–and even these they botch. Bayh-Dole, a law so cumbersome and stupid that even federal agency administrators cannot grasp it.

The UW worked with a panel of attorneys to create a standardized template for term sheets and license agreements that can be used by UW students, professors, and employees who develop innovations and want to spin out a startup.

What could be better for a spinout than a panel of attorneys? Who are the attorneys working for? Who is the client? Ah, the university, not the students, faculty, and employees (funny, there–faculty are differentiated from employees, as it ought to be). So the non-clients are told that here’s a “standardized template” they can use. But the attorneys who have reviewed the FAST template do not represent either the inventors personally or their companies. What a strange gesture! Any attorney who does startup business has template agreements–specific to what a startup needs to be in the best position to succeed and manage risk. The attorneys then modify these templates to suit the circumstances that the founders present with.

But here the university suggests that there are no such legal advisors available for university personnel. In a sense, the university is right. Because the university spreads its legal work around among Seattle law firms–all sorts of law, not just IP law–there’s virtually no law firm in the Seattle area willing to represent faculty or students against the interests of the university. There’s an “ethics” conflict, you see. And to resolve the conflict, the law firm has to decide between a nice paying contract with the university or a low income arrangement with someone just starting out and having its first fight with the big monster called UW. Well, the firms pick UW. Even firms that don’t have contracts with UW defer, as they may want to get those contracts in the future. Seattle is a legal assistance desert for anyone seeking representation to counter University of Washington positions. If the AG’s Office were to look at reforms, it would be to greatly limit the university’s practice of spreading legal work around to area law firms.

Why would anyone take the university’s template deal? Apparently some startup folks have. But the idea of it sounds ghastly–it appears that these company founders are not getting good legal representation of their own. If the university wanted to speed negotiations in its “there must be bureaucrats” approach, it would (a) offer to pay for its startup founders’ legal counsel and review of licensing agreements and (b) ask the founders to suggest terms consistent with the role the university has played in the work leading to the inventive stuff. But no. You won’t see that now.

The use of the term “innovations” here in “who develop innovations” is cloying. Innovations are those things that are introduced into an established order. Innovation is what a company does having got access to inventions and the like. Faculty, staff, and students might discover or invent or author or learn or gather, but what they have got is not “innovation.” Innovation happens later, if at all.

The templates are intended to shorten the negotiation process and reduce negotiation costs.

“Intentions” are bureaucratic fictions. It’s one thing for there to be disembodied “intention” and it’s another to show that the templates indeed do “shorten the negotiation process” and “reduce negotiation costs.” We are told the FAST template has been piloted for some time. Well? If the FAST template has shortened negotiations, then there’s no need to represent its launch as “intended”–it does. But wait–perhaps it doesn’t.

Even then–shortening negotiations from what to what? From two months to two weeks? Or from two months to 59 days? Or from 12 days to 11 days? How about negotiation costs? For whom? The university? The spinout? There’s a big difference there. The university has pretty much unlimited funds for negotiation and a new spinout company has almost none. Any negotiation for a spinout is hugely expensive as a percentage of its total expenditures, and is a rounding error for the university. Further, any negotiation for a spinout is a huge distraction and drain in energy, and for the university, a negotiation is a required process. Without any scale or statement of those who benefit from this new template approach, a shortening or cost goal is meaningless.  GeekWire says UW has used this new template 35 times. Well? How much shorter? How much less cost? For whom? Is it meaningful, even?

Shorter negotiation and lower negotiation costs are odd things to emphasize. Certainly no bureaucrat wants higher costs or delays, but for technology transfer for spinout companies, wouldn’t you think the prize would be rapid development, better working relationship between the university and the company, and beneficial products on the market sooner than if there were no university involvement? But no, the goal is rather improved bureaucratic speed and lower bureaucratic cost using a one-size fits all approach.

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